DEALBOOK; Duke Energy Tried to Stop Merger, Ex-Chief of Utility Says

By KEN OTTERBOURG

Published: July 20, 2012

RALEIGH, N.C. - Duke Energy tried to back out of a deal to buy Progress Energy as it faced increasing regulatory hurdles, the combined company's ousted chief said in testimony on Thursday.

At a hearing before North Carolina's utilities commission, the former executive, William D. Johnson, indicated that the relationship between the companies soured as a result, dooming his tenure as chief of the newly merged utility.

''They wanted the merger. Then they didn't. Then they couldn't get out of it, and they didn't want to be stuck with me, as the person who dragged them into it,'' Mr. Johnson said.

He is the latest person to testify about the boardroom coup at Duke.

When the deal was struck in January 2011, Mr. Johnson, then the chief executive of Progress, was slated to become to head of the newly combined company. James E. Rogers, then the C.E.O. of Duke, would step into the role of executive chairman. But just hours after the $32 billion merger closed this July, the board fired Mr. Johnson and put Mr. Rogers in charge.

The board's actions have ignited fierce criticism that the company misled regulators. Officials in North Carolina are now looking for answers, providing a rare glimpse into the inner workings of the boardroom.

While the newly merged company has seven million customers across six states, North Carolina, where it has its headquarters, is its largest market. The deal will result in the loss of about 1,000 jobs in Raleigh, the state's capital.

The controversy has weighed on the stock. Shares of Duke are down about 6 percent since Mr. Johnson was forced out. Some analysts are worried that the tumult could hurt the company's relationship with regulators.

At a hearing last week, Mr. Rogers said that Duke's board had pushed out Mr. Johnson over concerns about his autocratic management style and a lack of transparency about problems with Progress's nuclear power plants.

''It's just as simple as the board lost confidence in his ability to lead,'' Mr. Rogers said.

In testimony on Thursday, Mr. Johnson defended his tenure at Progress. He said that he was a strong and inclusive leader, adding that the issues at its Crystal River nuclear plant in Florida were well known to Duke's board.

Instead, Mr. Johnson said, the coup reflected soured relations.

He said the integration process between the companies appeared to be going well until December 2011. At that point, the Federal Energy Regulatory Commission expressed concerns about the mergers' effect on wholesale power prices.

As the companies tried to address those issues, they disagreed over the cost and method, and Mr. Johnson said his relationship with Mr. Rogers started deteriorating. Mr. Johnson said he heard through people on Wall Street that Duke executives in early 2012 were telling investors that the deal might not happen.

Mr. Johnson testified that he had become incensed after Mr. Rogers said in an interview that Mr. Johnson had pushed for a deal at a lower share price in exchange for being named the new chief executive.

But Mr. Johnson said that he and Progress had wanted the deal to move forward, believing the benefits to shareholders and customers were still clear. That created tensions between the sides, and when the merger closed, the board, dominated by Duke officials, opted to push him out.

''I believe then and I believe now that they explored every avenue to get out of this merger,'' Mr. Johnson said.

Duke officials, including Mr. Rogers and Ann Gray, the company's lead director, say they acted properly. The merger agreement did not specify how long Mr. Johnson would be chief executive, the company has said.

Ms. Gray and another Duke director, Michael Browning, are set to testify before the commission on Friday.

Edward S. Finley Jr., the chairman of the utilities commission, worked at the same law firm as Mr. Johnson. But he said the panel's interest would be the same if Mr. Rogers had been forced out in the same fashion.

''Our reaction here has nothing to do with who was fired, but what we were told,'' Mr. Finley said.

State law allows the commission to modify or rescind its approval of the merger. While that is unlikely, it was clear throughout Mr. Johnson's testimony that members of the commission had been upset by the events.

At one point, Mr. Johnson was asked by the commission whether he had pushed back after the board asked him to resign and Ms. Gray said his leadership style was not right for the new company.

''There's no sense to argue. She represents the board. She's got the votes,'' Mr. Johnson said in his testimony. ''There's no appeal.''

Mr. Finley responded, ''Well maybe. Maybe not.''

This is a more complete version of the story than the one that appeared in print.

PHOTO: William D. Johnson said the move to replace him as head of the merged entity reflected soured relations with Duke. (PHOTOGRAPH BY DAVIS TURNER/BLOOMBERG NEWS)